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Module 1 - Introduction to Affiliate Marketing Law

What is Affiliate Marketing?

Section titled “What is Affiliate Marketing?”

Affiliate marketing is a performance-based business model where you (the affiliate) earn a commission by promoting another company’s products or services. When someone makes a purchase through your unique link or referral, you receive compensation.

The Basic Process

Section titled “The Basic Process”
  1. Merchant creates a product or service
  2. You join their affiliate program
  3. You receive a unique tracking link or code
  4. You promote the product using this link
  5. Customer clicks your link and makes a purchase
  6. You earn a commission on that sale

Common Commission Structures

Section titled “Common Commission Structures”

Pay-per-Sale (PPS): You earn a percentage or fixed amount when someone buys
Pay-per-Click (PPC): You earn when someone clicks your link (less common)
Pay-per-Lead (PPL): You earn when someone signs up or submits information

On Redio, merchants set commission rates and pay you instantly in USDC when sales are processed.

Why Affiliate Marketing Has Rules

Section titled “Why Affiliate Marketing Has Rules”

The Consumer Protection Problem

Section titled “The Consumer Protection Problem”

In the early days of online marketing, some affiliates made false claims, hid their financial relationships, and misled consumers. People couldn’t tell the difference between:

  • Genuine recommendations from someone who loved a product
  • Paid endorsements from someone making money

This created an unfair advantage and harmed consumers.

The FTC’s Mission

Section titled “The FTC’s Mission”

The Federal Trade Commission (FTC) is a U.S. government agency responsible for:

  • Protecting consumers from deceptive practices
  • Ensuring fair competition in the marketplace
  • Enforcing truth in advertising laws

The FTC determined that material connections (like earning commission) affect how consumers evaluate recommendations. Therefore, these relationships must be disclosed.

Section titled “The Legal Framework”

Core Legislation

Section titled “Core Legislation”

FTC Act (15 U.S.C. § 45): Prohibits “unfair or deceptive acts or practices in or affecting commerce”

16 CFR Part 255 - Guides Concerning the Use of Endorsements and Testimonials in Advertising

  • Last major update: 2009
  • Clarifications: 2015, 2017, 2019, 2023
  • Applies to affiliate marketing, influencers, bloggers, and all forms of endorsement

Source: https://www.ecfr.gov/current/title-16/chapter-I/subchapter-B/part-255

What the Law Says

Section titled “What the Law Says”

The FTC Endorsement Guides establish that:

  1. Material Connection Must Be Disclosed: When there exists a connection between the endorser and the seller that might materially affect the weight or credibility of the endorsement, that connection must be fully disclosed.

  2. Endorsements Must Reflect Honest Opinions: Claims must be truthful and substantiated. You can’t make claims that the advertiser couldn’t make.

  3. Clear and Conspicuous Disclosure: Disclosures must be clear, prominent, and in plain language that consumers can easily understand.

  4. Advertiser Responsibility: Companies are responsible for ensuring their affiliates comply, even if the affiliate is an independent contractor.

Key Definitions

Section titled “Key Definitions”

Endorsement: Any advertising message that consumers are likely to believe reflects the opinions or experiences of someone other than the sponsoring advertiser.

Material Connection: A relationship that might affect the credibility of the endorsement—typically payment, free products, or other benefits.

Clear and Conspicuous: A disclosure that is difficult to miss and easily understandable by ordinary consumers.

Who Must Comply

Section titled “Who Must Comply”

U.S.-Based Affiliates

Section titled “U.S.-Based Affiliates”

If you are located in the United States:

  • ✅ You must comply with FTC regulations
  • ✅ This applies regardless of platform (blog, social media, email, etc.)
  • ✅ This applies regardless of earnings amount
  • ✅ This applies to all forms of compensation

International Affiliates

Section titled “International Affiliates”

If you are outside the United States:

  • ✅ FTC rules apply if you promote to U.S. consumers
  • ✅ Your local country’s advertising rules may also apply
  • ✅ When in doubt, follow the stricter standard

Everyone in the Chain

Section titled “Everyone in the Chain”

The FTC holds multiple parties responsible:

  • Affiliates: Primary responsibility for disclosure
  • Merchants/Brands: Must monitor and educate affiliates
  • Networks/Platforms: May have responsibility to facilitate compliance

On Redio, this means:

  • You (affiliate) are responsible for your disclosures
  • Merchants are responsible for monitoring their affiliates
  • Redio provides the infrastructure but you handle compliance

What Requires Disclosure

Section titled “What Requires Disclosure”

Clear Cases (Always Disclose)

Section titled “Clear Cases (Always Disclose)”

✅ You earn commission on sales (Redio commissions)
✅ You receive free products to review
✅ You are paid to create content about a product
✅ You receive discount codes or special pricing
✅ You receive gifts, trips, or experiences
✅ You have any business relationship with the brand
✅ You receive contest prizes or bonuses

Gray Areas (Still Disclose)

Section titled “Gray Areas (Still Disclose)”

✅ Small commissions (even $1 requires disclosure)
✅ Potential future benefits (hoping to become affiliate)
✅ Family/friend relationships with brand owners
✅ You work for or own stock in the company

When Disclosure Is NOT Required

Section titled “When Disclosure Is NOT Required”

❌ Genuinely unpaid, unsolicited reviews
❌ Comparing products you bought yourself
❌ General news or educational content with no financial tie
❌ Reporting on publicly available information

Rule of Thumb: If there’s any financial connection or benefit, disclose it.

Penalties for Non-Compliance

Section titled “Penalties for Non-Compliance”

FTC Enforcement Actions

Section titled “FTC Enforcement Actions”

The FTC can take several actions against non-compliant affiliates:

Warning Letters: Initial notice to correct violations
Consent Decrees: Legally binding agreements to change behavior
Civil Penalties: Fines up to $43,792 per violation (2023 rate, adjusted for inflation annually)
Corrective Advertising: Requirement to publish corrective disclosures
Injunctions: Court orders to stop certain practices

Real-World Examples

Section titled “Real-World Examples”

Lord & Taylor (2016)

CSGO Lotto (2016)

Teami (2020)

Beyond FTC: Other Consequences

Section titled “Beyond FTC: Other Consequences”

Platform Penalties:

  • Instagram, YouTube, TikTok may remove content
  • Account suspension or termination
  • Loss of monetization privileges

Merchant Actions:

  • Removal from affiliate program
  • Commission withholding or clawbacks
  • Termination of partnership

Reputational Damage:

  • Loss of audience trust
  • Negative press coverage
  • Difficulty joining other programs

Legal Liability:

  • Lawsuits from brands or consumers
  • State attorney general actions
  • Class action lawsuits

International Regulations

Section titled “International Regulations”

While this training focuses on FTC rules, many countries have similar requirements:

United Kingdom

Section titled “United Kingdom”

Advertising Standards Authority (ASA)

European Union

Section titled “European Union”

Unfair Commercial Practices Directive

Canada

Section titled “Canada”

Competition Bureau

Australia

Section titled “Australia”

Australian Competition and Consumer Commission (ACCC)

General Principle

Section titled “General Principle”

Most developed countries require:

  • Clear disclosure of financial relationships
  • Honest, non-deceptive advertising
  • Consumer protection in endorsements

When promoting internationally: Follow the strictest applicable standard.

Summary

Section titled “Summary”

Key Takeaways

Section titled “Key Takeaways”
  1. Legal Requirement: Disclosing affiliate relationships is required by law, not optional
  2. Consumer Protection: Rules exist to protect consumers from deceptive advertising
  3. Universal Application: Rules apply regardless of platform, earnings, or audience size
  4. Strict Liability: Ignorance of the law is not a defense
  5. Serious Consequences: Violations can result in significant fines and penalties

Your Responsibility

Section titled “Your Responsibility”

As a Redio affiliate, you are responsible for:

  • Understanding FTC regulations
  • Making proper disclosures on all content
  • Staying current with regulatory updates
  • Ensuring compliance even if merchants don’t require it

Next Steps

Section titled “Next Steps”

In the following modules, you will learn:

  • How to make effective disclosures (the 4 Ps framework)
  • Platform-specific disclosure requirements
  • Common mistakes and how to avoid them
  • Best practices for ethical affiliate marketing

Additional Resources

Section titled “Additional Resources”

Official FTC Resources:

Industry Organizations:

Module 1 Complete

You now understand the legal foundation of affiliate marketing compliance. Continue to Module 2 to learn how to make effective disclosures.